Thursday, August 26, 2010

I see many companies go through the fund raising process. Without a doubt the ones with networking skills come out with checks more often than those without networking skills. Most investors are found through the networking process and even more importantly those relationships are nurtured through good networking practices. Entrepreneurs seeking funding need to apply their networking skills to the fund raising process just as they do to other areas of their business.

In fact, even before you go out to raise funding you should begin the networking process. When you identify an investor -- ask to put him on your list to keep him informed of your progress. As you make progress send out a short email (say once a month or quarter) with an update of accomplishments.

I advised a local gaming company to do that and when I received their first status report, I was blown away by the accomplishments they had achieved in the past few months including downloads, subscribers, product developments, awards, and more. Had they not sent me that report, I would never have suspected they had as much traction as they did. That’s the key to networking -- making contact and keeping those contacts with you on the journey.

That being the case, why do so many companies keep comparably deadly problems in their metaphorical desk drawer for months or even years without dealing with them?
What are we talking about here?

We are talking about Single Points of Failure!

A single key employee that has unique knowledge required to do your business. What will you do if they move on, or (in business parlance) ‘get hit by a bus?’

A single advertising medium can be a big risk too. If you depend on being on the first page of Google for most of your business, you are going to have problems if or when you are no longer at the top of the search results. Do you drive most of your traffic from Google AdWords? What would happen if you could no longer advertise there?

An outsized large client – If your company depends disproportionately on one client like Wal-Mart, then you are clearly at risk.

A Single Sales Channel - I was a partner in a company that depended disproportionately on EBay for moving physical products from its warehouse into consumer's hands. This eventually got 'em in big trouble - as Ebay.com policies frequently changed, and their systems could be unstable.

A Single Financial Pathway- This is a huge one. If you are an online merchant, what will you do if your merchant account gets yanked out from under you? (This happened to us in 1999) Depend on PayPal? What would happen if they suddenly demand over $1 million in warm, fuzzy, escrow money to continue using them? (This happened to us in 2008).

What is the magic solution, the ‘bomb squad’ that will remove that live grenade out of your desk drawer?

One word: Diversification

Diversification is a buzzword in financial markets for a reason. It makes a critical difference when things don't go as planned...and things rarely go as planned. Look through your organization and play a game of "What IF?" and consider what would happen if any of the various cogs and wheels that make your company operate should break, disappear, or stop working. If your investigation hits on any points that make you feel uncomfortable, sick at your stomach or like you want to throw up on your desk -- you've hit gold!

I know what you are saying, I have heard it before. Hell, I have SAID it before: “We know about the dependency but we are too busy working on everything else to deal with it right now.” Having two businesses that took torpedoes to the engine room by the “leave it alone for the time being, too busy to fix it” mindset gives me the right – the privilege – to tell you this:

“You DO have time to fix your dependencies if you decide that it is important to do so.”

Hire more talent and train them to know what your key people know. (This can be TOUGH to do, but should be part of your plan -- even if it is a long term goal).
Build diversification into your marketing plan. Invest in alternative methods of reaching your customers like pay-per-click, traditional advertising (if appropriate), social media, etc. Hope for the best, but plan for the worst. It will mean more business in good times and better survivability in bad times.
Establish multiple payment methods for your transactions. (This too can be hard, but you will never regret finding a viable solution to this single point of failure.)
The Takeaway (and an excellent sound-bite): Fix single points of failure before they bite you in the ass! It is less a matter of “IF”, and really a matter of “WHEN” that bite will come.

Kevin Ready blogs on business and entrepreneurship at http://KevinReady.com
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